Deck 7: The International Monetary System and the Balance of Payments

Question 1

Under the gold standard ________.

A) currency values were determined by supply and demand
B) countries agreed to buy or sell their paper currencies for gold
C) countries were free to adopt any nation's exchange rate system
D) the dollar's value was allowed to fall on currency markets

Answer 1

B

Question 2

Assume you are an American exporter in 1895. What currency would you most likely want to receive for business transactions?

A) U.S. dollar
B) British pound sterling
C) German deutschmark
D) French franc

Answer 2

B

Question 3

The ________ records international transactions.

A) balance of payments accounting system
B) international accounting standards
C) gold standard procedure
D) ISO 9000 system

Answer 3

A

Question 4

The term ________ means that a currency's value is determined by the forces of supply and demand.

A) pegged
B) par value
C) float
D) market exchange

Question 5

The ________ refers to an international monetary system in which countries agreed to buy or sell their paper currencies in exchange for gold on the request of any individual or firm and to allow the free export of gold.

A) foreign exchange system
B) free market system
C) gold standard
D) mercantilism

Question 6

Why was the gold standard suspended during World War I?

A) Transporting gold became unsafe and complicated.
B) Normal commercial transactions between countries ceased.
C) Countries implemented mercantilism by hoarding gold.
D) The Bank of England could not maintain the pound's value.

Question 7

Between 1821 and 1918, why was the international monetary system also known as the sterling-based gold standard?

A) economic dominance of the United Kingdom
B) fluctuating gold value in the United States
C) reliance on German banking systems
D) expansion in the United States

Question 8

When did the sterling-based gold standard begin to unravel?

A) during World War I
B) during World War II
C) during the Civil War
D) during the Napoleonic Wars

Question 9

Which country was the first to adopt the gold standard?

A) the United Kingdom
B) Russia
C) France
D) Germany

Question 10

Under the gold standard, when the United States and the United Kingdom exchanged their currencies at a rate of the $20.67/₤4.247, the exchange rate was a ________.

A) floating rate
B) fixed exchange rate
C) par value
D) pegged rate

Question 11

A ________ refers to the official price of a currency in terms of gold.

A) fixed exchange rate
B) pegged rate
C) par value
D) currency rate

Question 12

A(n) ________ is the price of one currency in terms of a second currency.

A) export rate
B) exchange rate
C) excise tax rate
D) interest payment

Question 13

Under a ________, the price of a given currency does not change relative to other currency.

A) free trade agreement
B) fixed exchange rate system
C) floating exchange rate system
D) balance of payment system

Question 14

Which of the following is not true of the balance of payments?

A) It provides information about likely fiscal and monetary policy changes.
B) It supplies vital information about the health of a national economy.
C) It is the international monetary system's accounting system.
D) It establishes exchange rates between fixed currencies.

Question 15

The international monetary system provides a mechanism for ________.

A) establishing global accounting standards
B) enforcing the payment of importing tariffs and fees
C) correcting imbalances between a country's international payments and receipts
D) increasing a country's paper currency value in comparison to the global gold standard

Question 16

Why does the international monetary system exist?

A) because most countries have their own currencies
B) to control interest rates on international business loans
C) to avoid monetary crises from becoming global
D) because it sets the price of a given currency

Question 17

The ________ establishes the rules by which countries value and exchange their currencies.

A) international monetary system
B) OECD
C) World Bank
D) Federal Reserve

Question 18

What was created by the gold standard?

A) fixed exchange rate system
B) floating exchange rate system
C) global accounting standards
D) export and import regulations

Question 19

When firms had faith in a country's pledge to exchange its currency for gold, how did most prefer to be paid?

A) in gold
B) in paper currency
C) in credit
D) in U.S. dollars

Question 20

Which term refers to linking a currency value to the value of gold?

A) exchanging
B) pegging
C) pledging
D) standardizing

Question 21

When the gold standard ended ________.

A) currency values were determined by supply and demand
B) central banks sometimes manipulated exchange rates
C) countries agreed to buy or sell their paper currencies for gold
D) countries were free to adopt whatever exchange rate system best met their own requirements
E) the dollar's value was allowed to fall on currency markets

Question 22

What is the primary purpose of the Multilateral Investment Guarantee Agency?

A) make soft loans
B) make hard loans
C) promote FDI in developing countries
D) provide investors with political risk insurance

Question 23

The Bretton Woods conference sought to do all of the following EXCEPT ________.

A) renew the gold standard
B) create the International Monetary Fund
C) create the International Bank for Reconstruction and Development
D) provide no-interest capital loans to emerging economies around the world

Question 24

What was the initial goal of the World Bank?

A) administer the gold standard
B) hold financial reserves for all countries
C) finance reconstruction of war-torn economies
D) provide capital for corporate expansion activities

Question 25

A country can borrow up to ________ percent of its quota from the IMF?

A) 25
B) 40
C) 70
D) 90

Question 26

The interest rate on soft loans is traditionally set at ________.

A) 0 percent
B) 1 percent
C) 5 percent
D) 10 percent

Question 27

The World Bank and the International Monetary Fund were created as part of the ________.

A) Jamaica Accord
B) Louvre Accord
C) Plaza Agreement
D) Bretton Woods Agreement

Question 28

Currencies that can be freely exchanged for other currencies without legal restrictions are called ________.

A) floating currencies
B) fixed currencies
C) convertible currencies
D) free currencies

Question 29

Which country controls the largest bloc of votes in the IMF?

A) the United Kingdom
B) the United States
C) Germany
D) Japan

Question 30

Which of the following was created by the Bretton Woods Agreement to facilitate the expansion and balanced growth of international trade and to promote exchange stability?

A) World Bank
B) Inter-American Development Bank
C) International Monetary Fund
D) Multilateral Investment Guarantee Agency

Question 31

The International Bank for Reconstruction and Development is also known as the ________.

A) World Bank
B) International Monetary Fund
C) Organization for Economic Cooperation and Development
D) Bretton Woods Treaty

Question 32

What determines a country's borrowing power from the IMF?

A) country size
B) loan size
C) a quota
D) aggregate demand

Question 33

Which country holds the largest bloc of votes in the World Bank?

A) the United Kingdom
B) the United States
C) Germany
D) Japan

Question 34

The Bank of England no longer redeemed British paper currency for gold at par value ________.

A) in the 1920s
B) in the 1850s
C) before 1821
D) after 1931

Question 35

Country X has requested and received a loan from the World Bank. Country X may NOT use the money to finance ________.

A) new railroads
B) harbor facilities
C) national highways
D) trade deficits

Question 36

The leader of Country X has decided that the nation should join the IMF and has agreed to the rules and regulations of the IMF. Now Country X must ________.

A) pay a quota to the IMF
B) locate a sponsoring IMF country
C) pay each of the IMF members an entrance fee
D) agree to an IMF investigation of government spending

Question 37

What did the Bretton Woods conferees agree to do in 1944?

A) end World War II
B) renew the gold standard
C) adhere to the sterling standard
D) promote a foreign exchange market

Question 38

________ are those that bear significant risk of not being repaid.

A) Hard loans
B) Soft loans
C) Development loans
D) Reconstruction loans

Question 39

What was created by the Bretton Woods system?

A) a fixed exchange rate system
B) a floating exchange rate system
C) an accounting system
D) a export system

Question 40

What is the primary purpose of the International Finance Corporation?

A) make soft loans
B) make hard loans
C) promote private sector development in developing countries
D) provide political risk insurance to MNEs operating in emerging economies

Question 41

What term recognizes that in addition to private sector market forces, exchange rates are also affected by central banks buying or selling currencies on the foreign-exchange market?

A) par value
B) flexibility
C) managed float
D) special drawing rights

Question 42

What occurred at the Louvre Accord?

A) Central banks allowed the dollar's value to fall.
B) The value of the U.S. dollar was stabilized.
C) EU members adopted a common currency.
D) An exchange rate mechanism was established.

Question 43

What decision was made at the Smithsonian Conference in 1971?

A) implement a flexible exchange rate system
B) restore the fixed exchange rate system
C) eliminate the World Bank
D) create the IMF

Question 44

The balance of payments is useful to international business people for all of the following reasons except ________.

A) warning of new policies that could affect a country's business climate
B) indicating reductions in a country's foreign exchange reserves
C) signaling increased riskiness of lending to countries
D) predicting future exchange rates

Question 45

The ________ was created to manage currency relationships within the EU.

A) European Monetary System
B) World Bank
C) Brady Plan
D) Baker Plan

Question 46

The ________ is a double-entry bookkeeping system designed to measure and record all economic transactions between residents of one country and residents of all countries during a particular time period.

A) managerial accounting
B) international accounting
C) balance of payments
D) global books

Question 47

Which agreement resulted in each country adopting its own exchange rate system?

A) Bretton Woods
B) Smithsonian
C) Jamaica
D) Genoa

Question 48

Under a managed float ________.

A) currency values are determined only by private sector forces
B) central banks sometime manipulate exchange rates
C) countries agree to exchange paper currencies for gold
D) countries may adopt any exchange rate system

Question 49

Under a floating exchange rate system, what determines the exchange rate for each currency?

A) par value
B) gold standard
C) pegged value
D) supply and demand

Question 50

Which of the following is calculated daily as a weighted average of the market value of four major currencies?

A) special drawing rights
B) dollar averaging
C) exchange rate standard
D) par value

Question 51

The ________ records the purchases and sales of assets between residents of one country and those of another country.

A) current account
B) capital account
C) debt account
D) official reserves account

Question 52

What resulted from the Smithsonian Conference?

A) the euro was identified as the benchmark currency
B) currencies were allowed to fluctuate freely
C) the U.S. dollar was devalued
D) the SDR was created

Question 53

Which of the following is not one of the major accounts in the BOP accounting system?

A) capital account
B) debt account
C) official reserves account
D) errors and omissions

Question 54

The ________ records the levels of gold, convertible currencies, special drawing rights, and reserve positions at the IMF held by a national government.

A) current account
B) capital account
C) debt account
D) official reserves account

Question 55

Which currency played a central role in the Bretton Woods system?

A) British pound
B) German mark
C) Japanese yen
D) U.S. dollar

Question 56

The ________ records exports and imports of goods and services, investment income, and gifts.

A) current account
B) capital account
C) debt account
D) official reserves account

Question 57

Special drawing rights, SDRs, are sometimes called ________.

A) gold-sterling
B) paper currency
C) paper gold
D) credit

Question 58

Under the Jamaica Agreement ________.

A) currency values were determined by supply and demand
B) countries agreed to buy or sell their paper currencies for gold
C) countries were free to adopt any exchange rate system
D) the dollar's value was allowed to fall on currency markets

Question 59

The sale of a Mercedes-Benz from Germany to France would be recorded as a merchandise export in the ________ account of Germany's balance of payments.

A) capital
B) current
C) official reserves
D) export

Question 60

Dirty float is another term for ________.

A) flexible float
B) managed float
C) illegal exchange
D) convertible currency

Question 61

Carmen is a vice president at TechWorks, an MNE that manufactures computer chips. TechWorks is considering expansion, and Carmen is responsible for identifying potential locations. Which of the following would best help Carmen assess the competitiveness of a country's manufacturing sector?

A) balance on services
B) balance on goods and services
C) balance on merchandise trade
D) official settlements balance

Question 62

AeroTech, a German firm, deposits a check in a U.S. bank. The deposit will be recorded as a ________.

A) capital outflow in the U.S. BOP
B) capital inflow in the U.S. BOP
C) unilateral debit in the U.S.
D) credit to Germany's BOP

Question 63

The international monetary system provides a means of exchanging currencies in international business transactions.

Question 64

A country's BOP provides detailed information on the nation's debt payments and associated interest rates that can be used when making economic policy changes.

Question 65

Country X, a member of the IMF, needs to borrow money from the IMF. The IMF has agreed to the loan if Country X agrees to close insolvent merchant banks and lower tariffs on many goods. Which term refers to the restrictions imposed on the loan?

A) IMF hard loan details
B) World Bank pegging
C) IMF conditionality
D) BOP provisions

Question 66

Which of the following was NOT a key element of the Baker Plan?

A) rescheduling debt
B) imposing monetary controls
C) reducing debts of developed countries
D) continuing to lend to debtor countries

Question 67

The gold standard was a monetary system whereby countries agreed to buy or sell their paper currencies in exchange for gold.

Question 68

The U.S. balance of payments for 2010 shows ________.

A) that automobiles and auto parts were the largest component of U.S. merchandise exports
B) the leading import for the U.S. was consumer electronics
C) the U.S. had a negative balance on services trade
D) the U.S. exports more goods to its major trading partners than it imports

Question 69

A convertible currency is one that can be freely exchanged for other currencies without legal restrictions.

Question 70

Which of the following is not a form of asset included in the official reserves account?

A) government bonds
B) convertible currencies
C) special drawing rights
D) reserve positions at the IMF

Question 71

The BOP is a useful tool for detecting signs of trouble that could lead to governmental trade restrictions.

Question 72

Country X paid a quota to the IMF worth the equivalent of $50 million. Now, Country X needs to borrow money from the IMF. What is the maximum amount that Country X may borrow?

A) $7.5 million
B) $12.5 million
C) $25 million
D) $100 million

Question 73

Carmen is a vice president at TechWorks, an MNE that manufactures computer chips. TechWorks is considering expansion, and Carmen is responsible for identifying potential locations. Which of the following would best help Carmen identify a country's unilateral transfers and income generated by past investments?

A) current account balance
B) official settlements balance
C) balance on merchandise trade
D) balance on goods and services

Question 74

The ________ shows the difference between a country's exports of services and its imports of services.

A) trade in visibles balance
B) balance in merchandise trade
C) balance on services trade
D) capital account

Question 75

All of the following are typical short-term foreign portfolio investments included in the capital account except ________.

A) government bonds
B) checking accounts
C) commercial paper
D) bank loans

Question 76

All of the following are typical long-term portfolio investments included in the capital account except ________.

A) government bonds
B) checking account balances
C) government bills
D) corporate stocks and bonds

Question 77

Todd, an analyst for the U.S. government, has been given the task of assessing the economic performance of Country X in the international marketplace. Todd will most likely review the ________ of Country X.

A) BOP statistics
B) IMF quotas
C) portfolios
D) FDI

Question 78

Executives at Octagon Telecom, a global telecommunications firm, are considering investing in a telephone company located in Rwanda. However, many stockholders have expressed concerns about the political risk involved in such an investment. Which of the following would most likely provide political risk insurance to Octagon?

A) International Development Association
B) African Development Bank
C) International Monetary Fund
D) Multilateral Investment Guarantee Agency

Question 79

Executives at FDX Industries, an MNE that manufactures automotive parts, want to expand into emerging markets. Which of the following would most likely identify potential emerging markets and indicate reductions in a country's foreign-exchange reserves?

A) BOP statistics
B) IMF conditionality
C) par value
D) gold standard

Question 80

Dell Computers invests excess cash balances overnight in a London bank to earn a higher interest rate than it could earn in a New York bank. Dell is most likely making a(n) ________.

A) international currency investment
B) short-term portfolio investment
C) long-term portfolio investment
D) foreign direct investment